Event under the auspices of the Ministry of Economy of Slovak Republic

Perspectives of cogeneration plants and district heating sector – assessment of the impact of CO2 auctions and other legislative changes

Jiří Vecka
Czech Technical University in Prague, Fac. of Electrical Eng

Jaroslav Knápek
Czech Technical University in Prague, Fac. of Electrical Engineering, Dept. of Economics, Management and Humanities

Jiří Vašíček
Czech Technical University in Prague, Fac. of Electrical Engineering, Dept. of Economics, Management and Humanities

     Last modified: 2017-06-09

The purpose of the research

District heating sector and combined heat and power production effectively utilizes primary energy sources, reduce emissions related with covering of heat demand and can serve as the stabilization factor of heat prices both for households and industrial consumers. District heating sector is currently facing continuous implementation of the new legislation which will have the significant impact on its future economic competitiveness. Especially the revision of EU ETS scheme and CO2 auctions will play the crucial role. Paper presents the analysis of current position of heating branch and identification of expected external factors influencing its economic competitiveness. The analysis is based on the effects of new legislation introduction on heat prices in mid-term period. Modelling approach is based on theory of differential NPV. Impact of following external factors is explicitly evaluated: new emission standards, air and water pollution fees and the revision of EU ETS scheme.

The principal results and accomplishments and their significance

Results of the modelling clearly indicates that there is unequal treatment of polluters depending on the installed capacities which leads to the competitive distortions on the heat and power market with potential future escalation of this problem if no (legislative) remedial actions would be taken.
Results of the analysis show among others: (1) strong impact of CO2 cost on heat price from installations under the EU ETS framework – this creates major detrimental effects on the heat market because of the fact that installation below the 20 MW limit are not subject of these cost. Cost of CO2 are expected to be app. 80% of total price increase after the year 2020; (2) new emission standards have the second highest potential impact, esp. for installation over 20 MW. Smaller installations have lower emission standards and, thus, increase of pollution fees has higher impact on their economy.
Analysis has been divided into the four segments – installations below 1 MW, installations in the range of 1-20 MW, 20-50 MW and over 50 MW. Results of the analysis show that the highest impacts of new legislation is onto installation in the range of 20-50 MW where EU ETS and emission standards have highest specific effects. This will negatively impact esp. on mid-size heating systems located in regional towns where new legislation impacts in full and, in contrary, there are only reduced effects of return from scale (as is in case of bigger installations).

The major conclusions
Results of done analysis show the significant impacts of introduction of new EU legislation which could have potential significant impact on competitiveness of individual regional heating systems and heating branch as a whole. Presented analysis offers detailed comparison of different legislative tools which could lead to the weakening of overall economic and environmental effectiveness of proposed legislation. This could result, if there would not be adequate correction actions, in suboptimum alternative of heating branch development.


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